Update

In a recent decision, reversing more than a decade of precedent, the West Virginia Supreme Court of Appeals held that construction defects can constitute an “occurrence” in CGL policy. Cherrington v.The Pinnacle Group, Inc., 745 S.E.2d 508 (2013).

In Cherrington, a homeowner filed a lawsuit against her contractor, alleging that the contractor was negligent in the construction of her home.  The trial court ruled, among other things, that there was no coverage under the CGL because construction defects cannot constitute an “occurrence.” The trial court relied upon on well-established precedent on the issue. See Erie Ins. Property &Cas. Co v. Pioneer HomeImprovement, Inc., 206 W.Va 506, 526 S.E.2d 28 (1999); Corder v. William W. Smith Excavating Co., 210 W. Va. 110, 556 S.E.2d 77 (2001); Webster County Solid Waste Authority v. Brackenrich& Associates, Inc., 217 W. Va. 304, 617 S.E.2d 851 (2005).

The Court acknowledged its past precedent but noted that since those cases were decided, many courts from other jurisdictions had addressed the issue and reached the opposite conclusion.  After extensive analysis the Court concluded that a change in the law was necessary to achieve “just, fair, and equitable results:”

[A] majority of other states have reached the opposite conclusion, announcing their contrary view either in judicial decisions or through legislative amendments to their states’ insurance statutes…. We recognize that a definite trend in the law has emerged since we rendered our determinative decision inCorder sufficient to warrant this Court’s reconsideration of the issues decided therein and that, if warranted, a departure from this Court’s prior opinions would be consistent with this Court’s steadfast resolve to follow the law to achieve just, fair, and equitable results…
[W]e … hold that defective workmanship causing bodily injury or property damage is an “occurrence” under a policy of commercial general liability insurance.

745 S.E.2d at 517-518 and 521 (emphasis added)

Cases from West Virginia may not usually affect Hawaii law.  However, Cherrington is significant for at least two reasons.  First, Cherrington contains a detailed discussion of the occurrence issue and recognizes that the majority approach, and the “definite trend,” is to hold  that construction defects can constitute an occurrence.  Second, Cherrington sets an example of re-examining its prior decisions on the occurrence issue and reversing its conclusions based on general developments in the law.

Like West Virginia’s prior decisions, the Hawai`i Intermediate Court of Appeals (“ICA”) held that construction defects cannot constitute an occurrence under general liability policies. Group Builders, Inc. v. Admiral Ins. Co., 123 Haw. 142, 231 P.3d 67 (App. 2010).  In fact, the Cherrington opinion cites Group Builders, Inc. as one of the opinions in the “minority.”

In fact, the ICA already cut back on the significance of the Group Builders decision.  As noted in a previous article, the ICA issued a memorandum opinion in the same Group Builders case, holding that Admiral Insurance Company had a duty to defend Group Builders, Inc. with respect to claims arising out of alleged design and construction defects which led to mold infestation in the Kalia Tower in the Hilton Hawaiian Village hotel complex.  Group Builders, Inc. v. Admiral Insurance Company, 2013 Haw. App. LEXIS 207 (April 15, 2013).

The 2013 Opinion acknowledged the holding of its 2010 Opinion. However, the ICA noted that the duty to defend is determined at the time of tender.  And at the time of tender, Hawai`i law was “unsettled” with respect to whether property damage from a construction defect constituted an occurrence.  Therefore, a legal ambiguity existed, giving rise to the duty to defend pursuant to Sentinel Ins. Co., Ltd v. First Insurance Co. of Hawai`i Ltd., 76 Haw. 277, 875 P.2d 894 (Haw. 1994).

The Cherrington decision gives policyholders and their counsel hope that Hawai`i will ultimately follow the “definite trend” and the “majority approach” in holding that construction defects can constitute occurrences under commercial general liability policies.